Judge approves landmark eBook price-fixing settlement

A US federal judge yesterday (September 6) approved a major settlement with three companies over alleged eBook price fixing, in a ruling that could reshape the publishing industry.

Lagardère's Hachette Book Group, CBS Corp's Simon & Schuster Inc. and News Corp's HarperCollins Publishers agreed in April as part of a settlement to terminate their deals with Apple and refrain from limiting any retailers' ability to set eBook prices for two years.

The three firms, along with Penguin and Macmillan, had been accused of conspiring with Apple to push up the prices of eBooks.

According to the US Department of Justice, the publishers had taken the action collectively to force Amazon, the market leader in eBook sales, to stop its policy of discounting prices.

Hachette, HarperCollins and Simon & Schuster agreed a $69m (£44m) settlement with the US Department of Justice, and that was yesterday approved by a US district court judge.

The settlement fund will be used to compensate readers who bought eBooks between April 1, 2010 and May 21, 2012.

However, Apple is fighting the action, alongside Pearson's Penguin and Macmillan.

Apple had hoped to fend off final approval of the settlements and termination of the agreements until a trial next year.

"The settling defendants have elected to settle this dispute and save themselves the expense engaging in discovery," said US District Judge Denise Cote in Manhattan.

"They are entitled to the benefits of that choice and the certainty of a final judgment."

In April, the US government took Apple and the five book publishers to court over claims that they conspired to fix the prices of electronic books after the release of the iPad in 2010.

Although Hachette, HarperCollins and Simon & Schuster have opted to settle, Apple denies the charges and claims that it launched its own eBook store alongside the original iPad to provide competition for Amazon.

Apple feels that the iBookstore "fostered innovation and competition", while also "breaking Amazon's monopolistic grip on the publishing industry".

The dispute is primarily over how eBooks should be sold. Apple, Penguin and Macmillan are understood to favour the 'agency' model, in which prices are set by publishers, while 'distribution' platforms take a cut of sales - in Apple's case 30%.

The US Department of Justice instead suggested that the 'wholesale' model, in which Amazon and other retailers decide what to charge, is better for consumers and increases competition.

Booksellers including Barnes & Noble and the American Booksellers Association disputed the DoJ's proposed settlement, while many public comments have branded Amazon's $9.99 price for eBooks as "predatory".

However, Judge Cote said that the alleged victims of the actions of Apple and the publishers were actually the consumers.

"Although the birth of a new industry is always unsettling, there is a limited ability for anyone to foresee how the market will evolve," she said.

"What is clear, however, is the need for industry players to play by the antitrust rules when confronted with new market forces.

"It is not the place of the court to protect these bookstores and other stakeholders from the vicissitudes of a competitive market."

Following the ruling yesterday, antitrust lawyer Bob Kohn told the Wall Street Journal that he had filed an objection to the settlement.

He said that "it appears that the District Court deferred to the Justice Department in its analysis. It's very disappointing that the court has rendered a judgment that will cause great harm to consumers of e-books because the judgment reverses the pro-competitive effects of the agency pricing model".

Paul Aiken, executive director of the Authors Guild, told the paper that the ruling was "devastating" for bookstores as it allows Amazon to dominate the market.

"For two years the settling publishers must allow vendors to discount eBooks at any price they want," he said.

"The court acknowledges that this restores the status quo conditions before 2010, when Amazon was able to capture 90% of the e-book market.

"The Justice Department is reshaping the literary marketplace without submitting a single economic study to the court to justify its actions."

Apple has previously indicated that it would appeal the decision to approve the settlement, so it is likely to be some time before customers see lower prices on eBooks.